A generation of bankrupts

MORE than half of all personal bankrupts are now under 30, an alarming study has found. A mix of of irresponsible lending and carefree spending has landed thousands of people in their twenties with mountains of debt they cannot pay.

Most of this debt is on credit cards. As a result, the number of bankruptcies has hit an all-time high.

Bryan Jackson of the accountants PKF, whose survey uncovered the crisis, said: 'The entire ethos of saving for something you want has gone. Young people see the designer trappings and they want them now. Lenders are also out of control. You're offered credit wherever you turn.'

Most of the young bankrupts suffered financial meltdown because they were overoptimistic about the economic climate and their own career prospects and earnings. Some took on far higher mortgages than they could afford simply to get a foot on the property ladder. Others piled thousands of pounds on credit cards, or took out personal loans, to buy furniture, clothes, travel and cars.

They now face a miserable future, with a black stain on their financial record which will make it difficult to buy a home, get a credit card or take out a loan. Mr Jackson said that, in the past, most bankruptcies followed a crisis such as unemployment, sickness or divorce. Today's bankrupts, however, are normally in full-time work but buried under credit card debt.

He said: 'It's absolutely horrendous. We have to realise that credit card abuse is endemic among the young. We need more education.'

Mr Jackson is concerned that some banks and other finance companies deliberately target the young with promises of easy money. 'Something needs to be done to restrict them,' he said.

Banks and credit card companies have been criticised repeatedly for dishing out millions of cards without proper checks on the finances of customers. A spokesman for Citizens Advice said: 'Marketing of credit to the young is quite aggressive. Young people of this generation have a bigger problem because they also have the burden of student loans.

'The worst thing they can do is to try to borrow more money to cover repayments. That just leads to a spiralling debt trap.'

The number of individual insolvencies a year has now passed 50,000 ? an all-time record and 65% higher than a decade ago. The latest figures from Scotland show that 60% involve someone under 30.

PKF fear the problems in England and Wales, which they are investigating, could be worse still. The increase in bankruptcies is seen as an inevitable consequence of the UK's spiralling personal debt mountain, which has now topped £1trillion.

The amount of outstanding credit card debt from the 'buy now, pay later' culture is more than £56bn, generating huge interest and penalty charges.

Some 9,803 people were declared bankrupt between October and December last year ? up 29% on the same period in 2003. On top of this, huge numbers are opting for Individual Voluntary Arrangements, which are agreements short of bankruptcy where debts are repaid over time.

Official figures show 13,103 of these in the last three months of 2004, up 37% on 2003. A recent change in the law means bankruptcy is increasingly seen as an easy way out of debt ? in theory an order can now be discharged than three. But those who take this drastic step will still suffer problems with credit in future.

Even if they can get a mortgage or loan, the interest rates are likely to be much higher than normal. MPs have been warning for some time of a credit card crisis. Two weeks ago, the Treasury Select Committee condemned banks for giving misleading information on interest and imposing punishing penalty charges.

They pointed to a series of suicides of men with huge credit card debts. They included 21-year-old Scott Smith, from Norfolk, who was profoundly deaf and had only a part-time job, yet was allowed to run up debts of £10,500.

Separately, the Provident Financial company came under attack last night over a new credit card, available to people with a suspect credit history or low incomes, which will charge up to 70% interest. Labour MP John Battle said: 'To offer money to people struggling to find it and then charge them sky-high rates is immoral.'

MichaelDonoghue had no debts when he arrived at Cardiff University in 1996. When he graduated four years later he owed £35,000. This was spread across four credit cards, three bank accounts with overdrafts, three catalogue agreements, two store cards and a computer store loan.

He was also given a £5,000 loan from Barclays bank on top of his Government student loan of just over £6,000. The 27-year-old chemistrygraduate from Bangor, Northern Ireland, decided to declare himself bankrupt. He said most of the debt was racked up in his first year at university.

'As soon as you walk through the door the banks are trying to get you to sign up for credit,' he said. 'When you first go touniversity you haven't got any experience of budgeting, so when someone offers you free money you just jump at the chance.

'Some of the money went on books and equipment. Eating and drinking also took up a lot of my money. I could not believe how easy it was to get credit. No one was doing any checks to see what debt I was already in.'